ROYAL Bank of Scotland gave warning yesterday that costs related to past misconduct may be much higher than expected, as the state-backed bank also revealed a sharp fall in third-quarter profits.
“Whilst legacy issues continue to be addressed, material further and incremental costs and provisions in respect of conduct and litigation related matters are expected, and could be substantially greater than the aggregate provisions RBS has recognised,” the bank said.
RBS, which is now 73 per cent owned by the UK taxpayer, has already set aside £4.5 billion to cover regulatory and legal actions.
The group faces a number of investigations into past misconduct, including a probe by US authorities into claims it misled investors in mortgage-backed securities and a review of its treatment of struggling small and medium sized businesses by Britain’s Financial Conduct Authority (FCA).
The FCA is probing RBS’s Global Restructuring Group (GRG) turnaround division amid allegations the bank pushed viable businesses into GRG so it could seize their assets and charge higher fees.
Ross McEwan, RBS’s chief executive, said: “It’s one of those issues that I did say we wanted to tidy up this year. It certainly has some impact on us in terms of the feel around the organisation but I’m not going to give any view on the outcome, we’ll wait and see what comes through.”
Sir Howard Davies, overseeing the bank’s first results since being appointed as its new chairman, said: “Since 2008 RBS has gone through a very difficult period and there are still a lot of obstacles to overcome before we are back to full health.”
The government sold 5.4 per cent of its holding in the bank in August, taking a £1.1bn loss. RBS said yesterday that underlying profit fell to £842 million in the third trading quarter of 2015, more than halved from £2.05bn a year earlier.
Following a further hefty £847m of restructuring costs, largely from rationalising its investment bank and international operations, the bank made a Q3 operating loss of £134m. That compared with a headline £1.1bn profit a year ago.
Ewen Stevenson, RBS’s finance director, said: “We expect restructuring charges to be high over the next few quarters.”
The bank also announced the sale yesterday of its final 20.9 per cent stake in US bank Citizens worth £1.1bn, as well as litigation costs of £129m for the quarter, mainly relating to mortgage-backed securities.
Income was down £596m compared to Q3 last year, which the bank said was driven by a £394m decline in Corporate & Institutional Banking.
“Income pressures were also seen in UK personal & business banking and commercial banking where good loan volume growth was offset by continued competitive pressure on asset margins,” the bank said.
Elsewhere, there was continued growth in its mortgage lending, up 3.6 per cent on the second quarter to £3.8bn.